9911796707
TMI Blog2023 (1) TMI 314X X X X Extracts X X X X X X X X Extracts X X X X ..... nd on facts in making an addition of Rs. 90,69,199/- being sale consideration on sale of shares listed on recognized stock exchange as unexplained credit u/s 68 of the Act. 2.1. That while sustaining the aforesaid addition and denying the exemption learned Commissioner of Income Tax (Appeals) has failed to appreciate that, appellant was owner of equity shares of a listed company which had been held by it for a period exceeding 12 months and the same were sold on recognized stock exchange after payment of STT, resulting into a long term capital gain and therefore the long term capital gain accrued to the assessee on transfer of long term 'capital asset' was not includible in total income of the assessee in view of section 10(38) of the Act. 2.2. That the learned Commissioner of Income Tax (Appeals) has failed to appreciate the evidence tendered by the appellant to support the claim of sale of shares and hence, findings mechanically recorded on borrowed inference in disregard of evidence and based on irrelevant and extraneous considerations are misconceived and, misplaced. 2.3 That the learned Commissioner of Income Tax (Appeals) has confirmed the above addition and den ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... T, Indore on 18.10.2012. Therefore, the present appeal can also be proceeded with for hearing. We accepted the request of Ld. DR and proceeded accordingly. 3. Briefly stated the facts are such that the assessee-individual filed his return of income on 04.11.2015 declaring a total income of Rs. 35,77,010/- from salary, house-property, business / profession and interest. In the return, the assessee also declared a long-term capital gain of Rs. 90,69,199/- from sale of equity shares of Lifeline Drugs and Pharma Ltd. exempted u/s 10(38) of the act. The assessee claimed to have purchased shares of Lifeline Drugs and Pharma Ltd. for Rs. 34,293/- on 17.08.2012; sold the same for Rs. 91,03,492/- on 11.04.2014 and thereby earned a whopping capital gain of Rs. 90,69,199/-. The case was selected for scrutiny under CASS and the statutory notices u/s 143(2) and 142(1) were issued from time to time. During assessment-proceeding, the Ld. AO asked the assessee to prove the capital gain, in response to which the assessee made a detailed submission. Observing that the assessee has made an unrealistic non-taxable capital gain of Rs. 90,69,199/- on a very small investment of just Rs. 34,293/- and tha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... knowing to the company i.e. M/s Lifeline Drugs. The assessee has stated that on the tips received from market he has purchased and after some time on the rise of rates he has sold such scripts. It is also observed that assessee was unaware with the company's book results and its financial status. It is also noted that increase in the prices of the share of M/s Lifeline Drugs in just one and half year was approx 19834% is total unrealistic. 3.10 The assessee has been confronted with all the evidence gathered and the issues mentioned in the foregoing paragraphs. The explanation of the assessee is general in nature that as the transaction is through Stock Exchange and the payment is by cheque, the transactions should be treated as genuine. The background of the scheme given in the beginning of the order clearly shows that both the requirements are in built in the scheme and does not ipso facto prove genuineness of transaction. The SEBI after thorough investigation has certified that such transactions are rigged and are carried out to convert Black money into white. That being so, the credit in the bank account of the assessee cannot be treated as explained and is therefore, lia ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nt in the present case to show that the apparent was not the real. The taxing authorities were not required to put on blinkers while looking at the documents produced before them. They were entitled to look into the surrounding circumstances to find out the reality of the recitals made in those documents. " That genuineness could validly be tested on the ground or principle of preponderance of human probabilities, which could thus form a valid ground or parameter for determining. the genuineness, stands since settled by the apex court in Sumati Dayal v. CIT (1995) 214 ITR 801 (SC) wherein the apex court, in declaring the transaction as non-genuine, discarded a host of documentary evidences filed or relied upon by the assessee-appellant. That documentary evidences are not by themselves conclusive, and the truth of the matter or the documents could be determined on the basis of or on the anvil of the surrounding facts and circumstances of the case is well settled, and reliance is placed on the decision in the case of Durga Prasad More 82 ITR 540 (SC). 5. In view of the discussion made above and considering the facts and circumstances of the case, the following facts become manife ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y previous year the same may be charged to income tax as the income of the assessee of that previous year if the explanation offered by the assessee about the nature and source thereof is, in the opinion of the Assessing Officer, not satisfactory. In such case there is prima facie, evidence against the assessee, viz. the receipt of money, and if he fails to rebut, the said evidence being un-rebutted, can be used against him by holding that it was a receipt of an income nature. While considering the explanation of the assessee the Department cannot, however, act unreasonably" 6. Further, the transaction is found to be not genuine in in view of the following observations and facts: i) The financials of the penny stock Lifeline Drugs and Pharma and movement of the price is abrupt, unrealistic and not based upon any realistic parameters. ii) In the similar circumstances, the honorable Gauhati High Court of CIT Vs Sanghamitra Bharali(361 ITR 481) had held that the capital gains are sham transactions entered only to give colour of genuineness and therefore, held that the capital gain arising out of these transactions cannot be believed as genuine and upheld taxing the said amount a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , the authorities held that the assessee had not tendered cogent evidence to explain as to how the shares in an unknown company worth Rs. 5/- had jumped to Rs. 485/- in no time. The Income Tax Appellate Tribunal held that the fantastic sale price was not at all possible as there was no economic or financial basis as to how a share worth Rs. 5/- of a little known company would jump from Rs.5/- to Rs. 485/-. The findings recorded by the authorities are pure findings of facts based on a proper application of the material on record. While recording the said finding, the authorities have followed the tests laid down by the Hon'ble Supreme Court and this Court in several decisions. The findings do not give rise to any substantial question of law. 9. In view of the facts and circumstances discussed supra and circumstantial evidence available on record, it has been concluded that the transactions were sham transactions and aimed only to bring unaccounted money in the guise of exempt long term capital gain and paper work has been done merely to give a colour of authenticity to the transaction and by creating a façade of legitimate transactions. The same is therefore chargeable to t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... so credited is given the colour of a service charges. The use of the words "any sum found credited in the books" in section 68 indicates that the said section is very widely worded and an Income-tax Officer is not precluded from making an enquiry as to the true nature and source thereof. It is neither necessary nor desirable to give examples to indicate under what circumstance section 68 of the Act can or cannot be invoked. What is clear, however, is that section 68 clearly permits an Income-tax Officer to make enquiries with regard to the nature and source of any or all the sums credited in the books of account of the company irrespective of the nomenclature or the source indicated by the assessee. In other words, the truthfulness of the assertion of the assessee regarding the nature and the source of the credit in its books of account can be gone into by the Income-tax Officer. 3.6 The term 'Burden of Proof' means burden to prove an allegation before a decision can be given. The question regarding burden of proof arises on a contested issue where one of the two contending parties has to introduce evidence and in the absence of such evidence, it is assumed that the par ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n all criminal or quasi-criminal proceedings, where there is no statutory provision to the contrary. But in appreciating its scope and the nature of the onus cast by it, we must pay due regard to other kindred principles, no less fundamental of universal application. This principle has been succinctly and felicitously put by Brett - "all exactness is a fake". EI Dorado of absolute proof being unattainable, the law accepts for it, probability as a working substitute in this work-a-day world. The law does not require the prosecution to prove the impossible. All that it requires is the establishment of such a degree of probability that a prudent man may, on its basis believe in the existence of the fact in issue. Thus legal proof is not necessarily perfect proof; often it is nothing more than a prudent man's estimate as to the probabilities of the case. The other cardinal principle having an important bearing on the incidence of burden of proof is that sufficiency and weight of the evidence is to be considered - to use the words of Lord Mansfield in Blatch Vs. Archer according to the proof which "it was in the power of one side to prove and in the power of the other to have co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s credit entry obtained by paying consideration out of unaccounted cash. 4.1 The appellant during relevant period had sold 37986 shares of M/s. Lifeline Drugs & Pharma Ltd. through M/s Fairwealth Securities Ltd. for total consideration of Rs.90,69,199/- @ Rs.238.75. These shares were out of 1500 shares found purchased by the appellant on 17.08.2012 for total consideration of Rs.67712/- from M/s. Lifeline Drugs & Pharma Ltd. through M/s. Vishal Vijay shah @ Rs.45/- per share converted into 75000 shares through stock split. In this way, the appellant has shown to have earned Long Term Capital Gain of Rs.9069199/- from sale of share of M/s Lifeline Drugs & Pharma ltd. in a short span of 12 months (Approx.) The LTCG so earned has been claimed as exempt u/s. 10(38) of the I.T. Act, 1961 which apparently has not been accepted by the Assessing Officer for the detailed reasons brought out in the assessment order reproduced at page nos. 3 to 10. Therefore, the entire sale consideration has been treated by Assessing Officer as unexplained credit u/s 68 of Income Tax Act.1961. 4.2 The inquiries were carried out country-wide by DDIT (investigation), Kolkata and other parts of county to une ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nny stock in which manipulations were carried out. 4.3 In view of the above stated details and facts. the appellant during the assessment proceedings as well as appeal proceedings was required to explain as why the LTCG of Rs.90,69,199/- should not be treated as bogus and unexplained credit u/ s 68 of IT Act, 1961. The appellant during assessment proceedings was also given sufficient opportunities by the AO to prove genuineness of transaction, identity of the purchasers of shares and creditworthiness. The appellant has failed to prove three ingredients of section 68 of the IT Act, 1961. 4.4 The fundamentals and financials of the M/ s Lifeline Drugs &, Pharma Ltd. have been analyzed and discussed in detail by the AO in the assessment order at Page Nos. 4 to 5. The analysis made by the AO clearly establishes the fact that the prices of the shares suddenly shot up rocket high although there was no corresponding growth in the company. The prices have been manipulated to its highest at the time of selling the stock. Therefore, it proves beyond doubt that the shares of M/s. Lifeline Drugs & Pharma Ltd. were penny shares only. The transactions were managed and manipulated by entry ope ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the above script with effect from 07- 01-2015 due to surveillance measures. This also shows artificial tinkering with the prices of the shares of the company. 4.7 The issue of penny stock has been dealt with by Hon'ble bench of Chandigarh ITAT 111 the case of Shri Abhimanyu Soin in ITA No.951/Cha/2016 dated 18/04/2018. In that case, appellant purchased 800 shares of M/ s Sharp Transport Ltd. (STL) which subsequently merged with M/s Oasis Cine Communication Ltd. (OCL). The appellant was allotted 27200 shares of merged company pursuant to said merger. In one and a half year, when the shares worth 2,72,800/ were sold and capital gain of Rs.80,55,577/- was disclosed by the appellant. It has held by the Hon'ble Bench. "On consideration of the facts of the case as a whole it cannot be accepted that the assessee can have long term capital gains of Rs.80,25,291/- within 17 months of buying of shares at Rs.2, 72,000/I of a non-descript company incorporated in 2017 which gat merged in 2009. This cannot be a case of intelligent investment or a simple case of tax planning to gain benefit of long term capital gains. The issue that it deals with and the facts are however, quite in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ). In view of the information provided by the investigation wing, Kolkata, the recommendation of SIT on black money etc, the AO required the assessee to prove her claim of exemption. After considering her reply etc held, inter alia, that it is clear that the assessee has manipulated the sale of shares Within a short span of time in collusion with the brokers in order to earn tax free exempt long term capital gains on sale of shares u/s 10(38) etc. it is clear from the orders of the lower authorities that the assessee has not placed nay material to prove that her transactions are genuine. She has also not placed any material to prove that the claim of exemption u/s 10(38) is genuine and valid. Since, trio right to exemption must be established by those who seek it, tile onus therefore, lies on them. In order to claim the exemption from payment of Income Tax, the assessee had to put before the Income Tax Authorities proper materials which would enable them to come to a conclusion. Thus, the above actions of the assessee are nothing, but a premeditated, contumacious conduct surreptitiously done for specific reasons for converting unaccounted money of the assessee under the guise of la ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... us to disturb their findings. Accordingly we hereby confirm the order of the Ld. Revenue Authorities on this issue. Thus the first ground raised by the assessees herein above in all the appeals are held against the assessees." 4.10 Further, reliance can be placed on following decision of various benches of ITAT and High Courts. In the case of shri Sanjay Bimalchand Jain L/H Shantidevi Bimalcahnd Jain vs. PCIT (ITA No. 18/2017 Bombay High court (Nagpur Bench), Hon'ble Court held as under: "The assessee has purchases large the rate of Rs.5.50 per share on based companies i.e., 8OOO shares a 05.08.2003 O8. 08,2003 and 4000 shares at the rate of Rs 4/per share on 05.08.2003. The assessee sold 2200 shares at an exorbitant rate of Rs. 486.55 per share on 07.06.2005 and 800 shares on 20.06.2005 at the rate of Rs.485.65. the authorities held that the assessee had not tendered cogent evidence to explain as to how the shares in an unknown company worth Rs.5/- had jumped to Rs.485/- in no time. Addition confirmed." 4.11 In the case of Chandan Gupta Vs CIT [2015] 54 taxrnann.com 10 (Punjab & Haryana)/[2015] 229 Taxman 173, Hon 'ble Punjab & Haryana High Court held that.- "where as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of penny stock shares. The tax authorities have rightly applied the test of human probabilities to examine the claim of purchase and sale of shares made by the assessee. The CIT(A) was justified in confirming the order of the AD by applying the test of human probabilities. " 4.14 In the case of Ratnakar M Pujari Vs ITO /2016-TIOL-1746-ITAT-MUM, Hon'ble ITAT Mumbai held that- "a transaction of 'off market purchase of share' for which payments were made in cash and the brokers had issued predated contract notes, is liable to be treated as bogus transaction, and hence such cash receipts are liable to be treated as 'Unexplained cash receipts." 5. STRICT INTERPRETATION OF EXEMPTION AND EXCEPTION PROVISIONS: I have also gone through the written submissions and various case laws quoted by the appellant during the appeal proceedings. It is not disputed that some High Courts and benches of ITAT have given decisions in favour of the assessee on the basis of peculiar facts of the case on the relevant issue. But, if there are conflicting views of High Courts and ITAT, the one favourable to revenue has been taken in the cases of exemptions and exceptions. The issue under ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 3327/2007 dated 30/07/2018, has held in a clear terms that exemption notification should be interpreted strictly. The burden of proving applicability would be on the assessee to show that his case comes within the parameters of exemption clause or exemption notification. 5.1 While laying down the above proposition, Hon'ble Apex Court had not only referred the decisions of that court in Commissioner of Central Excise New Delhi vs. Hari Chand Shri Gopal (2011) 1 SCC 236 (SC) Mangalore Chemicals & Fertilizers Ltd. vs. Dy. Commissioner of Commercial Taxes (1992) Suppl. 1 SCC 21 (SC) and the case of Novopan India Ltd. (Supra) but has also confirmed the principles laid down in these decisions. 5.2 Therefore, in view of above facts and judicial pronouncements, in the instant case, despite a number of opportunities, the appellant has failed to prove that LTCG claimed exempt u/s 10(38) of Income Tax Act, 1961 is genuine and it falls strictly under the ambit of exemption provisions. Rather, it has been proved beyond doubt by investigation wing, Kolkata, SIT on black money and the AO that LTCG claimed is nothing but a bogus entry managed by the appellant by paying consideration out o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lkata, on a project basis, which has resulted into the unearthing of a huge syndicate of Entry Operators, share brokers and money launderers, involved in providing bogus accommodation of Long Term Capital Gain, Short term capital loss. It has come to light that large scale manipulation has been/is being done In market price of shares of certain companies listed on the Bombay Stock Exchange by certain persons working as a syndicate in order to provide entries of tax exempt bogus Long Term Capital Gains to large number of persons in lieu of unaccounted cash. The basic objective of this racket is to convert black money into white without payment of Income Tax. The unaccounted cash of such persons [beneficiaries] is utilized to purchase shares of such companies at a very high artificially inflated market price. This practice is generally called Accommodation Entry Scam, as the activities of such persons are carried out with prime objective of accommodating unaccounted cash of beneficiaries into their regular books of accounts without paying any tax on the same. Some of the listed companies, directly or indirectly owned by operators and whose share prices have been apparently manipulate ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nce of probabilities to ascertain as to whether there has been violation of the provisions of the Income Tax Act. In such a circumstance, the conclusion has to be gathered from various circumstances like the volume from trade, period of persistence in trading in the particular scrips, particulars of buy and sell orders and the volume thereof and proximity of time between the two which are relevant factors. Therefore, in our considered view the methodology adopted by the department cannot be faulted. 70. It was argued by Mr. Bagaria that in the decision in Balram Garg, the decision in K.R. Ajmera has been overruled. To examine the correctness of the said submission, we have carefully gone through the findings rendered by the Hon'ble Supreme Court in paragraph 47 of the judgment in Balram Garg which reads as follows: "Lastly, we have given our anxious consideration to the judgments relied upon by the learned counsel of the Respondent viz. SEBI vs. Kishore R. Ajmera [(2016) 6 SCC 368] and Dushyant N. Dalal vs. SEBI [(2017) 9 SCC 660]. Suffice it to hold that these cases are distinguishable on the facts of the present case, as the former is not a case of insider trading but tha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to have been done through the various stock exchanges and it is only when the assessees made claim for a LTCG/STCL, the investigation commenced. As pointed out the investigation did not commence from the assessee but had commenced from the companies and the persons who were involved in the trading of the shares of these companies which are all classified as penny stocks companies. Therefore, the argument of the assessee that the copy of the investigation report has not been furnished, the persons from whom statements have been recorded have not been produced for cross examination are all contention which has to necessarily fail for several reasons which we have set out in the proceedings. To reiterate, the assessee we not named in the report and when the assessee makes the claim for exemption the onus of proof is on the assessee to prove the genuinity. Unfortunately, the assessees have been harping upon the transactions done by them and by relying upon the documents in their hands to contend that the transactions done were genuine. Unfortunately, the test of genuinity needs to be established otherwise, the assessees are lawfully bound to prove the huge LTCG claims to be genuine. I ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... what would mean by a sham transaction as a legal one and it is pointed out that all the parties thereto must have a common intention that the acts or documents are not to create the legal rights and obligations which they give the appearance of creating. Further by referring to the decision in Vodafone International, it is submitted that the revenue cannot start with the question as to whether the transaction was a tax deferment/avoidance but the revenue should apply the "look at" test to ascertain its true legal nature and that genuine strategic planning had not been abandoned. Further the revenue has to establish on the basis of facts and circumstances surrounding the transactions that the impugned transaction is a sham or tax avoidance. In this regard Mr. Bagaria ITAT NO. 06 OF 2022 AND ETC. BATCH also referred to the decision in the case of Hill Country Properties Limited Versus Goman Agro Farms Private Limited 90 and also the decision in IRC Versus Duke of Westminster 91. 74. In our considered view we need not travel thus far and wide to examine as to how and what is said and what is not said in McDowell Mr. Soumen Bhattacharya referred to the decision for the simple reason ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eafter, Ld. DR submitted that the ITAT, Indore Bench has already decided Shri Abhishek Gupta Vs. ITO, Ward-5(5), ITA No. 74/Ind/2019, order dated 17.08.2022 wherein the identical issue of exempted capital gain from shares of Turbotech Engineering Ltd. was examined. Ld. DR submitted that after a mindful consideration and thorough analysis, the Bench has rejected the assessee's claim of long-term capital gain and upheld the additions made by revenue. Ld. DR submitted that the basic facts of the present appeal are similar to the facts involved in Shri Abhishek Gupta (supra) and there is no reason to deviate from the pre-existing decision. Ld. DR, therefore, prayed that the decision should be applied in present appeal too and the additions made / confirmed by lower authorities must be upheld. 11. We are in absolute agreement with the submission of Ld. DR that the issue of exempted capital gain arising from Turbotech Engineering Ltd. stands duly examined and concluded by ITAT, Indore Bench in the case of Shri Abhishek Gupta (supra). We note that the although the present appeal concerns the shares of Lifeline Drugs and Pharma Ltd., but the position is pari materia similar to the share o ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
